Remarks by John Pecman, Interim Commissioner of Competition

Norton Rose

Montréal, QC
January 30, 2013

(Check against delivery)


I am pleased to be here with you to talk about the current activities and priorities of the Bureau.

After four months now as Interim Commissioner, I have had the time to reflect and consider how we can best deliver on our mandate, going forward. From this, have come three priorities for the Bureau.

They are:

  • benefitting Canadians, through focused enforcement and through strategic regulatory interventions;
  • applying Canada's competition laws in a transparent and predictable manner
  • and, building trust through enhanced collaboration.

Delivering on these priorities is how we will continue to ensure that Canadian businesses and consumers prosper in a competitive marketplace.

But, we can't do this alone.

This is why collaboration with people like you, our stakeholders is so critical.

Successful collaboration is built on mutual trust, and trust must be established through open lines of communication.

This is why my priority for the Bureau in the coming months is – building trust through collaboration between the Bureau and all its stakeholders.

I believe that transparency, certainty and predictability are the lynchpins of our future success. And, that Canadian consumers and the business community deserve some certainty as to what they can expect from the Bureau.

To that end, in the near future we will be working collectively with the bar, pursuant to our mutual collaboration initiative:

  • to discuss issues that have arisen in the context of electronic document production;
  • to develop clear guidelines on the Price Maintenance provisions;
  • to update the FAQs associated with our Leniency program, to reflect developments and to respond to feedback from our stakeholders regarding areas which are not clear; and,
  • finally, and what I am going to touch on today – clarifying our investigative procedures.

The Bureau's use of Section 11 Orders

It goes without saying, that law enforcement agencies must make use of all investigative tools at their disposal, in order to deliver their mandates both effectively, and efficiently.

Accordingly, as an independent enforcement agency, at the Bureau, we use all of the tools that Parliament has given to us in the Competition Act to deliver on our mandate.

When conducting investigations, this means that we must use the most effective and efficient evidence-gathering tool, in order to advance our investigations in a timely way.

For investigations under formal inquiry, in non-merger, civil matters, this means obtaining information from the target of an investigation by using the powers available to us through section 11 of the Competition Act. This section, as you may know, allows us to obtain records and written returns, and conduct oral examinations under oath.

We've long used section 11s when gathering evidence. Certainly I've applied for my fair share as an investigator. However, more recently, we have sometimes sought this information voluntarily, and this has complicated and delayed our inquiries and caused confusion about our investigative practices.

I'd like to touch on a recent example of this.

During my term as Interim Commissioner, we obtained section 11 orders against the target of an investigation into a suspected case of abuse of dominance.

We had approached counsel for the target to convey our concerns and followed up with a voluntary request for information.

What ensued in response was:

  • initially a request to defer our investigation,
  • then an agreement to comply with our request but not agree to a timeline,
  • then the setting of a timeline,
  • then a failure to meet the date when the records were expected, and,
  • then a request that the Bureau close its investigation and the view from counsel that the voluntary request was unnecessary.

So to sum up, following weeks of delay and attempted negotiation of the terms of the request, we encountered further resistance to comply with the voluntary request, accompanied by arguments that we abandon our investigation.

Unfortunately, this is one of many examples where parties may be using the VIR process for their own strategic purposes, resulting in undue delays for obtaining information on a voluntarily basis.

Our ability to obtain complete and timely responses to voluntary requests threatens the integrity of the Bureau's investigative process.

Too often, parties say they'll comply with a voluntary request for information, only to backtrack and contest the basis for the Bureau's investigation when deadlines loom or lapse. This can result in months of delay and compromise our investigations and this is unacceptable.

The problem is, however, much more serious than one of delayed investigations. In the absence of court orders, parties may provide less than complete responses to our requests for information.

We know this because, despite claims by parties that a voluntary request for information has been fully complied with, we later obtain evidence from another law enforcement agency that is directly relevant to the investigation and should have been provided by the party.

It is not surprising then, that, in one recent investigation, after providing records to the Bureau pursuant to a voluntary information request, the party refused to certify that it had provided all the records relevant to the request.

While Einstein didn't practice anti-trust law, in this context, I believe the Bureau must take heed of the very perceptive observation, frequently attributed to him, that the definition of insanity is doing the same thing over and over again and expecting different results.

Inefficient, incomplete and untimely responses compromise investigations and hinder the Bureau's ability to fulfill its mandate.

So, going forward, the Bureau's first course of action in obtaining information from the target of a formal inquiry in non-merger cases will be, for all but exceptional cases, obtaining a legally binding section 11 order from the Court.

We have and we will continue to use the tools given to us by Parliament, including section 11, to carry out the most rigorous investigations possible and avoid the problems that occur when this information is requested voluntarily.

The Bureau's use of section 11 should not be considered, nor should it be used as a form of punishment – quite simply, it is a matter of conducting investigations in the most rigorous and efficient way possible, and in accordance with our legislation.

I said it earlier and it bears repeating: I am committed to ensuring transparency, certainty and predictability in the Bureau's dealings with all of its stakeholders.

That's why I wanted to take this opportunity to provide clarification and eliminate any confusion with regard to the emphasis we are placing on the use of section 11 as an investigative tool in non-merger matters.

And, it follows that section 11 orders increase transparency and certainty by providing a clear framework, timelines and set of rules, for both the Bureau, and targets of investigations.

The case I mentioned earlier highlights the pervasive problem that exists and the necessity of our approach to apply section 11 orders as the rule, when seeking information from the target of an investigation.

When the court granted our section 11 request in this case, which was contested by the target, it made a point of noting that it was "satisfied that the Commission did not act unfairly".

And furthermore, it noted that the circumstances under which we filed the application for a Section 11 order did "not amount to an abuse of process."

Section 11 orders were designed by Parliament and included in the Competition Act for the expressed purpose of aiding our investigations.

The Bureau believes strongly that these orders ought to be used for this purpose and we will continue to pursue s.11 orders efficiently and effectively.

The court's decision to grant our request reinforces confidence in the Bureau and in its approach to the use of section 11 orders. More importantly, it demonstrates the court's willingness to grant these requests, reinforcing that this approach is both necessary and correct.

The purpose of my sharing this with you today is to ensure that, in keeping with my commitment, the Bureau is being as transparent as possible about the way we operate.

Transparency

I also mentioned earlier my commitment to collaboration at the Bureau – and my firm belief that it is one of the lynchpins of our future success. This, along with transparency and certainty, will guide the Bureau's future dealings.

We recognize that understanding how the Bureau delivers on its mandate is a critical piece. It supports counsel and businesses to provide appropriate advice and to make informed decisions.

Undoubtedly, the business and legal communities and Canadian consumers deserve some certainty as to what they can expect from the Bureau. I believe that certainty comes from adopting a consistent approach and being transparent about it. Accordingly, the Bureau has invested considerable efforts into a number of initiatives aimed at increasing transparency, including updating guidance material and publishing an increasing number of position statements. But I believe we have more work to do in meeting our responsibility to be as open with our stakeholders as possible.

As a result, you can expect this practice to continue, as we continue to publish position statements that describe the Bureau's analysis of complex merger cases.

These statements provide insight into the analysis of a proposed merger and summarize the Bureau's findings. More importantly, they provide transparency regarding our approach to the anti-trust community and industry stakeholders.

We currently determine whether a proposed transaction ought to result in the publication of a position statement based on a number of factors including the complexity and importance of the issues raised in the review, the level of interest in the case, and whether the review involved new analytical tools, findings or outcomes.

I have asked our Mergers Branch to review our current practice of requiring the issuance of position papers with a view to improving the predictability and the substance, in consultation with our stakeholders, as part of our investigative procedures project.

We are also closing in on the first year of our online merger register — a list of all closed merger reviews, updated on a monthly basis. This report provides the names of the parties to the transaction, the industry sector involved and the outcome of the Bureau's review.

These will continue to work in concert to provide greater transparency about our review of proposed merger transactions.

Recent and Ongoing Enforcement Work

While I have been clear that our plan is to focus on enhancing relationships, I must unequivocally say that we will do this without ceding an inch on our primary enforcement mandate.

As a competition law enforcer, with nearly 30 years of experience at the Bureau, my commitment to the vigorous enforcement of the act, deeply influences my approach to directing the agency.

Ensuring compliance with the Competition Act, designed to protect and provide marketplace competition, is critical to enhancing innovation and productivity for the Canadian economy. Competition benefits all Canadians by enabling them to choose a variety of products at affordable prices. Driven by the pressures of competition, companies turn to innovation to keep pace with their rivals.

And let me tell you, we have not relented one bit in our enforcement work – indeed the Bureau continues to be a very busy place.

Let me share some recent examples with you.

Late last month, the Competition Bureau filed suit against two players in the residential water heater business – Direct Energy Marketing Limited (Direct Energy) and Reliance Comfort Limited Partnership (Reliance), for abuse of dominance.

Following an extensive investigation, we determined that these players engaged in practices that appear to be intentionally aimed at suppressing competition and restricting consumer choice.

Currently, when Direct Energy or Reliance customers wish to switch to another provider, they must contend with a number of practices that are allegedly anti‑competitive, significantly deterring competition with the incumbent water heater providers.

It goes without saying, this type behaviour would be detrimental to consumers and will have a significant impact, affecting businesses that both rent and sell water heaters.

In the case of Direct Energy, this conduct took place following the expiry of a 10 year consent agreement, reached in relation to similar anti‑competitive practices.

Let me be clear, the expiry of a consent agreement is not a license to re-engage in anti‑competitive behaviour.

On the subject of consent agreements, we recently reached an agreement with Air Canada and United that addresses concerns with their decision to enter into a joint venture on 14 high-demand routes between Canada and the U.S that would have been tantamount to merging their flight operations on routes between the two countries.

The consent order ensures that passengers will not face higher prices and decreased choice on those high-demand routes, as a result of the strategic agreement between these competitors. This means that on these 14 routes – the airlines may not coordinate prices or seats available at set prices, pool revenue or costs or share commercially sensitive information. An independent monitor, appointed by the Bureau will ensure that the parties comply with the terms.

Our legal proceedings against Bell, Rogers, Telus and the Canadian Wireless Telecommunications Association for misleading advertising promoting costly "premium texting services" continues.

These proceedings are the result of an investigation which found that the parties facilitated the sale of premium rate digital content – things like trivia questions and ringtones – without adequately disclosing the associated fees.

While customers were led to believe this content was free – it was not. And, in the case of Rogers Bell and Telus, they pocketed a share of these revenues.

What made it worse was the fact that the parties led customers to believe that there were measures in place to prevent these charges in the first place.

Misleading advertising is a serious offence, and in this case, it represented a significant financial impact to consumers – up to $10 a transaction. Transactions, I will remind you, that consumers undertook with a belief that they were free.

In addition to a corrective notice and a stop to cease misleading advertising, we are seeking full customer refunds and administrative monetary penalties of $10 million from each of the companies in question and $1 million from the Canadian Wireless Telecommunications Association.

One of the investigations I am most proud of is the Bureau's investigation of the retail gas sector in the Quebec. This investigation, one of the largest and most exhaustive in the Bureau's history, resulted in 39 individuals and 15 companies being charged with criminal price-fixing.

To date, 30 individuals and seven companies have pleaded guilty with fines totalling over $3 million. Of the 30 individuals who have pleaded guilty, six have been sentenced to terms of imprisonment totalling 54 months. This investigation points to the Bureau's unwavering commitment to cracking down on cartels that cheat tax-payers out of their hard earned money.

Finally, we expect that we will have decision shortly from the Competition Tribunal on our application to strike down restrictive and anti‑competitive rules imposed by Visa and MasterCard on merchants who accept their cards.

Partnerships in Quebec

When I began speaking today I said that all enforcement agencies must use all investigative tools at their disposal, to fulfill their mandate effectively and efficiently.

The Bureau has a legislative responsibility to Canadian consumers to deliver its mandate effectively and efficiently and we intend to do so, employing all of the tools available to us.

While I touched on one of the legislative tools, I would like to speak now to one of the non-legislative tools that supports us in delivering on our mandate and that is collaboration.

Specifically, our collaboration with our law enforcement partners, here in Quebec.

A great example of the success that can be realized through collaboration is that of our joint efforts being undertaken by the Bureau and the Unité permanente anticorruption, more commonly known as UPAC.

On June 21st of this year, UPAC and the Bureau concluded a two year investigation in to a sophisticated collusion scheme, involving contracts mainly for infrastructure projects in Saint-Jean-sur-Richelieu region.

The scheme resulted in a lessening of competition and, not surprisingly, a significant increase in costs for the affected cities and their taxpayers.

Through a commitment to collaboration and relentless efforts, this joint operation resulted in 77 charges being laid against 11 individuals and 9 companies in the construction industries.

It is safe to say that this great result could not have been achieved without collaboration. The success of this operation speaks strongly to the value of partnerships among enforcement agencies.

Collaboration is not limited to investigations, indeed, if we are to deepen our awareness and outreach efforts, it stands to reason that we ought to work with our regional counterparts.

Here in Quebec, representatives of the Bureau and the Marteau squad are working to deliver outreach sessions, aimed at awareness and prevention.

All of this points to a strengthening of the channels of communication between the Bureau and its partners in Quebec.

We also continue to pursue investigations in Quebec on our own and outside of our partnerships. A very good example is our bid rigging investigation with respect to sewer services.

On December 20, 2012, additional criminal charges under s. 47 of the Competition Act were laid against one company and two individuals for their continued role in a conspiracy to rig bids for municipal sewer services contracts in the greater Montreal region.

As part of the same investigation, criminal charges were previously laid in November 2011 against six companies and five individuals. To date, three companies and one individual have pleaded guilty.

Conclusion

In closing, I would like to say that the Bureau remains steadfastly committed to ensuring that Canadian consumers and businesses thrive in a competitive and innovative marketplace.

We will continue to achieve this through focused, principled enforcement of the Act and through strategic regulatory interventions; by applying Canada's competition laws in a transparent and predictable manner and by building trust through enhanced collaboration.

At this time, I would like to invite your questions.

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